2Q24 results inline, lowers revenue guidance due to weak macro
- 2Q24 net income of INR62.1bn (+4.5% q-o-q, +3.2% y-o-y) and revenue of INR389.9bn (+2.8% q-o-q, +6.7% y-o-y) were inline with street.
- INFY had the highest ever large deal total contract value (TCV) in 2Q24 rising to US$7,684m from US$2,285m in 1Q24.
- FY24F revenue growth guidance revised downwards for the second time to 1% – 2.5% (prev 1% – 3.5%), citing macro weaknesses; mid-point guidance is 4% below street
Net income in 2Q24 was INR62.1bn (+4.5% q-o-q, +3.2% y-o-y), inline with street estimates. INFY recorded net income of INR62.1bn (+4.5% q-o-q, +3.2% y-o-y) in 2Q24 inline with street estimates of INR62.9bn. Net income margin in 2Q24 was 15.9% (15.7% in 1Q24) compared to street’s expectation of 16.0%. Margin surprise was due to lower sales and marketing expenses which dropped by 1.6% in 2Q24 compared to 7.5% increase in 1Q24. INFY reported operating profit of INR82.7bn (+4.9% q-o-q, +5.1% y-o-y) in 2Q24, inline with street, and accounting for ~26% of management’s mid-range FY24F guidance, given in 1Q24. Operating margin was 21.2% in 2Q24 (20.8% in 1Q24). INFY’s 2Q24 revenue was INR389.9bn (+2.8% q-o-q, +6.7% y-o-y), inline with street expectations, led by sequential growth in all geographies and verticals except for financial services and communication segments. INFY had the highest ever large deal total contract value (TCV) at US$7.7bn in 2Q24 compared to US$2.3bn in 1Q24. Total headcount in 2Q24 declined by 7,530 employees q-o-q to 328,764 (decline of 6,940 employees in 1Q24). Net client addition were 100 in 2Q24 compared to 99 in 1Q24.
FY24F revenue growth guidance revised downwards for the second time, citing macro weaknesses. INFY has lowered its FY24F revenue growth guidance for the second time from 1%-3.5% y-o-y growth given in 1Q23 to 1%-2.5% (4%-7% y-o-y growth given in 4Q23). The mid-point revenue guidance in FY24F is 4% below street expectations, which we expect to be revised lower. INFY highlighted that while client interest in cost-efficiency programs remains strong, discretionary projects and large transformation programs are facing increasing scrutiny and are being ramped down. The major concern was delay in decision making by clients especially in financial services and telecom segments. However, the operating margin guidance remain unchanged at 20-22% for FY24F inline with street estimates of 21%. Other key takeaways are utilization rates improving to 80.4% in 2Q24 from 78.9% in 1Q24 and last 12-months (LTM) voluntary attrition declining from 17.3% in 1Q24 to 14.6% in 2Q24. Despite near term macro uncertainty impacting IT budgets, INFY’s long-term growth remains resilient.